chapter 8 quiz

when the owner of a $250,000 life insurance policy dies, the beneficiary decided to leave the proceeds of the policy with the insurance company and selected the interest settlement option. if at the time of withdrawal the interest paid was $11,000. the beneficiary would be required to pay income tax on

$11,000

an insured decided to surrender his $100,000 whole life policy. the premiums paid into the policy added up to $15,000. at policy surrender, the cash surrender value was $18,000. what part of the surrender value would be income taxable

$3,000

if $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually

$3,000

a policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. this nontaxable transaction is called

1035 exchange

what is the number of credits required for fully insured status for social security disability benefits

40

a claimant, who is totally and permanently disable, is eligible for social security disability benefits after an elimination period of

5 months

which of the following refers to the amount of retirement benefits a worker receives under social security based on the worker's earning and retirement age?

PIA

an individual has been diagnosed with Alzheimer's disease. he is insured under a life insurance policy with the accelerated benefits rider. which of the following is true regarding taxation of the accelerated benefits

a portion of the benefit up to a limit is tax free; the rest is taxable income

which of the following is NOT an allowable 1035 exchange

a whole life insurance policy is exchanged for a term insurance policy

if an annuitant dies during the accumulation period, what benefit (if any) will be included in the annuitant's estate?

accumulated cash value

who can make a fully deductible contribution to a tradition IRA

an individual not covered by an employer-sponsored plan who has earned income

which concept is associated with "exclusion ratio"?

annuity payments

which of the following is not true of section 1035 policy exchanges

any exchange made under section 1035 of the internal revenue code must be completed within 30 days

all of the following are requirements of eligibility for social security disability income benefits except

being age 65

in terms of social security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called?

blackout period

when contributions to an immediate annuity are made with before-tax dollars, which of the following is true of the distributions

distributions are taxable

which of the following is true regarding taxation of dividends in participating policies

dividends are not taxable

which of the following is used to determine the annuity amounts that are not taxable

exclusion ratio

what type of tax is associated with death proceeds from a life insurance policy

federal estate tax

if taken as a lump sum, life insurance proceeds to beneficiaries are passed

free of federal income taxation

in a direct transfer, how is money transferred from one retirement plan to a traditional IRA

from trustee to trustee

if an insured worker has earned 40 quarters of coverage, the worker's status under social security disability is

fully insured

all of the following are considered social security benefits except

group

in life insurance policies, cash value increases

grow tax deferred

which of the following is an eligibility requirement for all social security disability income benefits

have attained fully insured status

an insured has a modified endowment contract. he wants to withdraw some money in order to pay medical bills. which of the following is true

he will have to pay a penalty is he is younger than 59 1/2

when a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income

interest only

what is the main purpose of the seven-pay test

it determines if the insurance policy is a MEC

if an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy

it is only taxable if the cash value exceeds the amount paid for premiums

if a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an

modified endowment contract

which of the following is not true regarding policy loans

money borrowed from the cash value is taxable

death benefits payable to a beneficiary under a life insurance policy are generally

not subject to income taxation by the federal government

traditional IRA contributions are tax deductible based on which of the following

owner's income

which of the following are social security benefits

retirement, disability and survivors

what part of the internal revenue code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences

section 1035 policy exchange

during the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal

taxable interest will be withdrawn first and the 10% penalty will be imposed if under the age 59 1/2

a 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. which of the following is true

the amount of distribution is reduced by the amount of a 20% withholding tax

J transferred his life insurance policy to his son two years before his death. which of the following is true

the entire face value of the policy will be included in J's taxable estate

what method is used to determine the taxable portion of each annuity payment

the exclusion ratio

which of the following is true regarding taxation of accelerated benefits under a life insurance policy

they are tax free to terminally ill insured

social security was created to provide all of the following benefits except

unemployment income

all of the following benefits are available under social security except

welfare benefits

when do full social security retirement benefits begin

when the worker reaches age 65 and has earned the required amount of work credits

which of the following statements regarding the taxation of modified endowment contracts is false

withdrawals are not taxable

which of the following describes the taxation of an annuity when money is withdrawn during the accumulation phase

withdrawn amounts are taxed on a last in, first out basis

what is the penalty for IRA distributions that are below the required minimum for the year

50%

the minimum number of credits required for partially insured status for social security disability benefits is

6 credits

to attain currently insured status under social security, a worker must have earned at least how many credits during the last 13 quarters?

6 credits

an applicant buys a nonqualified annuity, but dies before the starting date. for which of the following beneficiaries would the interest accumulated in the annuity NOT be taxable

spouse

what type of annuity activity will cause immediate taxation of the interest earned

surrendering the annuity for cash